Method and system for evaluating a physician&#39;s economic performance and gainsharing of physician services

ABSTRACT

The invention relates to a method and system of physician economic performance evaluation in which the relative medical difficulty associated with patients admitted by a particular physician is determined and, given that measurement, judgments made concerning the relative amount of inpatient resources that the physician required. Also, one application of the present invention relates to a method for gainsharing of physician services using a surplus allocation methodology for rewarding physicians in relation to their performance. An incentive pool is determined from previous patient claims and payments made to physicians in advance, such as in a base year. Best practice norms are established for a plurality of classified diagnosis groups. In one embodiment of the present invention, the classified diagnosis related groups are adjusted for severity of illness to compensate for actual clinical challenges faced by individual physicians. The best practice norms can be used in the surplus allocation method for determining physician performance. The incentive is established proportional to the relationship between a physician&#39;s individual performance and the best practice norm.

CROSS-REFERENCE TO RELATED APPLICATION

This application is a divisional of U.S. patent application Ser. No.11/283,309 filed Nov. 18, 2005, which is a continuation-in-part of U.S.patent application Ser. No. 10/346,308 filed Jan. 17, 2003, which claimspriority of U.S. Provisional Patent Application No. 60/349,847 filedJan. 17, 2002, all of which are hereby incorporated in their entirety byreference into this application.

BACKGROUND OF THE INVENTION

1. Field of the Invention

The invention relates to a method and system of physician economicperformance evaluation in which the relative medical difficultyassociated with patients admitted by a particular physician isdetermined and, given that measurement, judgments made concerning therelative amount of inpatient resources that the physician required.Also, one application of the invention relates to a method and system ofgainsharing of physician services in which a best practice norm isestablished for a plurality of classified diagnosis groups and anincentive pool is distributed to physicians by comparing physicianperformance to the best practice norm while meeting constraints onincentive distribution.

2. Description of the Related Art

Many strategies have been proposed and implemented that were intended tocontain the rising cost of health care. For example, over the pastdecade, health maintenance organizations (“HMOs”) have receivedconsiderable attention. HMOs employ various strategies to incent and/orpenalize health care consumers (enrollees), hospitals and physicians.Physicians are particularly important because they exercise ultimatejudgment over medical decision-making. Consequently, HMOs employ acombination of strategies, such as “hands on” review over medicalutilization decisions, coupled with discounts on physician fees in orderto reduce physician costs, and to control the impact of physicians onother health care costs, such as hospital costs. These strategies aresometimes criticized as being indirect, complex and overly bureaucratic.

A different kind of healthcare cost containment strategy was implementedby Medicare in 1983: In that year, the federal program for the elderlyreplaced “reasonable cost” reimbursement for acute care hospitals with“payment by the case”. Specifically, beginning in 1983, Medicarereimbursed hospitals a fixed price for each Diagnosis Related Group(“DRG”). By reimbursing a fixed price for each DRG, hospitals werefurnished economic incentives to reduce resource utilization. Thepayment system was known as the Medicare Prospective Payment System, or“PPS”.

New Jersey acute care hospitals continue to suffer their worst financialdistress in recent history. A report issued by the New Jersey HealthCare Facilities Finance Authority in June, 1999, suggests that a largepart of the problem is New Jersey's Medicare length of stay which was1.6 days over the national average, at that time. The report estimatesthat removing the costs associated with these excess days could save$600 million. Improved operational performance by hospitals, however,cannot be achieved without the active collaboration of the doctors. Toachieve this necessary partnership, the New Jersey Hospital Association(NJHA) proposes a Demonstration to test whether or not Performance BasedIncentives can improve the efficiency and effectiveness of hospitalinpatient care for Medicare fee for service beneficiaries.

Under the Medicare Prospective Payment System (PPS), prospective paymentby the case referred to as Diagnosis Related Group, DRG provides acutecare hospitals with incentives to control unnecessary resourceutilization. Diagnosis Related Groups (“DRGs) is a system of patientclassification utilized by the federal government to pay hospitals.Under the Medicare Prospective Payment System (“PPS”), DRGs are utilizedto pay hospitals a fixed price per case. Physicians, however, exerciseultimate control over such decisions and unfortunately, in thisparticular regard, the Medicare fee for service payment system thatgoverns the reimbursement for physicians contains financial incentivesto provide more services, even when medically unnecessary. Attempts toresolve this conflict of economic incentives have been unsuccessful.Medicare risk-based systems have failed to gain the confidence of bothproviders and beneficiaries.

Gainsharing has been a primary objective of the healthcare industry formany years. The need to align the economic incentives of hospitals anddoctors (any payors) has grown more urgent as the economic fortunes ofall parties have deteriorated. Pursued by many, it seemed that the goalwas close to realization in the late 90s: Unofficial communication fromthe Office of Inspector General (OIG) seemed to recognize the importanceof taking this next step. These hopes were dashed, however, when the OIGissued a formal statement in 1999 indicating that, while potentially ofgreat value, “. . . regulation of gainsharing arrangements requiresclear, uniform, enforceable and independently verifiable standardsapplicable to all affected parties . . . ”

In a seeming reversal of its prior position, on Jan. 11, 2001 the HHSOffice of Inspector General (OIG) suggested that it would permit the useof properly structured gainsharing arrangements to reduce hospitaloperating costs. Although gainsharing arrangements take numerous forms,they most often relate to services furnished within a single clinicalspecialty (e.g. cardiac surgery or oncology) and are executed directlybetween a hospital and one of the following individuals or groups: oneor more individual physicians providing service in the clinicalspecialty; one or more group practices composed exclusively ofphysicians furnishing care in the clinical specialty at the hospital; ora single entity representing all staff or employed physicians furnishingcare in the clinical specialty at the hospital.

Gainsharing arrangements typically include several common elements. Thehospital contracts with participating independent consultants orphysicians to analyze current operational practices within the clinicalspecialty. These practices include supply use, equipment use, operatingroom use, ancillary-service use, formulary restrictions, clinicalprotocols, nonphysician staffing, scheduling of procedures, bed-usereview, and discharge assessment.

The physicians are expected to comply with standard policies,procedures, and protocols that reflect best practices as determined byclinical consultants. These best practices are reviewed and revised, asnecessary, by physicians practicing in the clinical specialty to ensurethat they are consistent with quality care. Any reduction in operatingcosts in the clinical specialty is documented by the hospital over aspecified period after implementation of the best practices. Thehospital then monitors whether the participating physicians meetmutually agreed-upon, objective benchmarks called quality safeguards forquality of care and patient satisfaction. Finally, if such qualitysafeguards are met, the participating physicians are paid a fixedpercentage of the reduction in operating costs associated withimplementation of the best practices.

It is desirable to provide an improved method and system for evaluatingphysician performance which can be the foundation for various costcontainment strategies, such as gainsharing of physician services.

SUMMARY OF THE INVENTION

Conventionally, diagnosis related group classifications have been usedto determine of fixed price per case to pay hospitals. The presentinvention applies classified designated groups to physicians to evaluatephysician economic performance. The physician economic performance canbe determined by a comparison of relative resource consumption amongphysicians, given a certain type of classified patient DRG, which can beadjusted for severity of illness (SOI). The SOI adjustment isadvantageous in fairly determining economic performance of physicians,because individual physicians may attract a more difficult case mixbecause of skill or reputation.

It was found that a successful healthcare cost containment strategy(PPS, HMO, or other) begins with the physician who is the medicaldecision maker. The present invention involves the first step in thatstrategy, physician performance evaluation, as well as its application,for example, incentive based compensation. The present inventionprovides a methodology for evaluating the relative consumption ofinpatient resources of individual physicians, adjusted for case-mix, andseverity of illness. Physician economic performance can be evaluatedutilizing classified DRGs uniquely sensitive to the varying medicaldifficulty presented by cases within a DRG category, such as ALL PATIENTREFINED DIAGNOSIS RELATED GROUPS (APR DRGs) or other systems of patientclassification that is adjusted for severity of illness. Accordingly,the present invention can evaluate the relative medical difficultyassociated with the patients admitted by a particular physician and,given that measurement, can make judgments concerning the relativeamount of inpatient resources that the physician required.

Physician economic performance evaluation provides the foundation forvarious cost containment strategies. It can be used simply to provideinformation to physicians, hospitals (HMOs, and consumers.) As set forthin the present invention, it can be linked to economic incentives inorder to directly influence physician behavior. Alternate variations canbe developed from the same foundation, for example, fixed rates per casefor physicians. The various applications can be implemented by hospitals(as described herein), by the government, by HMOs or by consumers. Allof these applications begin, however, with objective physician economicperformance evaluation.

The present invention utilizes routinely collected data of the uniformbill (UB) which is issued for every patient in every acute carehospital, pursuant to federal law, and the Medicare cost report. Typesof healthcare providers can be identified from the uniform bill. Thetypes of healthcare providers can include Responsible Physician,Hospital Based Physician, such as Radiologist, Anesthesiologist,Pathologist, Consultant Physician, or Other. The identified healthcareproviders provide framework for determining and comparing physicianperformance in each identified health provider category.

The present invention provides methodologies that can be utilized tocompute physician costs (Part B) and incentive payments, based onpayments to hospitals (Part A) or based on a percentage of payments tohospitals (Part A). Referred to as “Part A/B ratios”, thesemethodologies are able to utilize payments to hospitals (Part Apayments) to determine: (1) the total incentive pool of money availablefor rewards and incentives to physicians under a given set ofconstraints; (2) the total identified amount available to the variouscategories of healthcare providers; (3) within the pool available forpayments to the Responsible Physicians, provide separate pools availablefor medical admissions and surgical admissions; (4) the amount ofresources required by each physician to treat his/her own, case-mixadjusted for severity of illness, and (5) the best practice norm (BPN)for each patient category, such as classified by APR-DRG and for eachhealthcare provider category, as described above. The A/B ratios enablethe method and system of the present invention to determineperiodically, using hospital (Part A) data, whether a physician'sperformance has improved or deteriorated relative to the BPN and, undera given set of rules, the amount of reward/incentive, or compensationfor loss of income, that a given physician might be entitled to. Variousreports can be generated that identify problem areas and opportunitiesfor improvement related to a given physician, at a given hospital, andwith respect to a given cost center, such as room and board, radiology,operating room.

Accordingly, the present invention evaluates physician performanceutilizing routinely collected data, primarily the uniform bill orhospital claim. This may be contrasted with conventional systems thatattempt to accomplish the same objective utilizing other data which isusually customized for this purpose. Conventional systems are typicallyfar more expensive, and impose significant, additional data collectionburdens on providers. The method and system of the present invention isefficient, inexpensive and, because it relies on various data, ratiosand categories extracted from routinely collected information, easier toimplement than conventional systems. The economic physician performanceevaluation methodology can be linked to financial incentives designed to(1) reward physicians that are efficient, and (2) to incent physiciansthat are inefficient to become efficient. For example, the presentinvention could be used to develop fixed case rates for physicians(similar to the case rates that Medicare currently uses to reimbursehospitals.) Alternatively, the economic physician evaluation can be usedin gainsharing of physician services.

In one embodiment, the present invention relates to a method forgainsharing of physician services using a surplus allocation methodologyfor rewarding physicians in relation to their performance. An incentivepool is determined from previous patient claims and payments made tophysicians in advance, such as in a base year. Best practice norms areestablished for a plurality of classified diagnosis groups. In oneembodiment of the present invention, the classified diagnosis relatedgroups are adjusted for severity of illness to compensate for actualclinical challenges faced by individual physicians. The best practicenorms can be used in the surplus allocation method for determiningphysician performance. The incentive is established proportional to therelationship between a physician's individual performance and the bestpractice norm.

The amount available for distribution in the incentive pool is limitedby an incentive constraint. For example, the incentive constraint canlimit physician fees to twenty five percent (25%) of Part B feesassociated with Medicare fee for service admissions at the DemonstrationSites, for complying with 42 CFR §417.479, Requirements for PhysicianIncentive Plans. This limitation, which is based upon similarrestrictions applied in a conventional managed care context. Theincentive constraint is designed to strike a balance such that: (1) Theincentive is sufficient to overcome the natural incentives of fee forservice payments to provide more services, even when medicallyunnecessary and (2) The incentive is not so large as to encourage aphysician to withhold medically necessary services. The incentive poolis distributed by comparing current physician performance for each ofthe classified diagnosis related groups to the established best practicenorm.

In an embodiment, the incentive pool is subdivided into incentive poolsfor the classified healthcare providers, such as responsible physicians,hospital based physicians and consulting physicians. The responsiblephysician pool is further divided into a sub pool for medical admissionsand surgical admissions for the classified diagnosis related groups.

Particularly in regard to medical admissions, a physician whose resourceutilization is above the Best Practice norm can be forced to sacrificePart B income in order to implement steps to reduce hospital costs (Thisis because Part B fees associated with medical admissions are sensitiveto length of stay, and to the professional component associated withtesting). To neutralize this effect, the Part B fees that are related tofollow-up physician visits that occur in regard to medical admissions,after the initial consultation, but prior to discharge are identified.The fees can be identified separately by level of severity, andmultiplied by the length of stay savings projected for each level ofseverity, (i.e., average Base Year experience compared to Best PracticeNorm). In one embodiment, the method provides an incentive pool forimprovements for compensation of physicians for loss of income resultingfrom improvements in efficiency related to the medical admissions andimproved operational performance related to surgical admissions.

While participating in the surplus allocation, physicians are directedto exercise their best clinical judgment in regard to each and everypatient to maintain quality of care. In general, the system of physicianperformance evaluation set forth in this application is advantageousbecause it combines various attributes. The adjustment for severity ofillness addresses a primary concern raised by physicians regarding thefairness and objectivity involved in economic performance evaluationsince certain physicians attract a more difficult case-mix because ofskill or reputation. The present invention uses routinely collecteddata. This eliminates the drawbacks of other systems which typicallyrequire the collection of data that imposes significant burden andexpense on providers. The present invention directed to evaluation ofphysician economic performance can be linked to various payment andeconomic incentive systems intended to influence physician behavior.

The invention will be more fully described by reference to the followingdrawings.

BRIEF DESCRIPTION OF THE DRAWINGS

FIG. 1 is a flow diagram of a method for gainsharing of physicianservices.

FIG. 2 is a flow diagram of a method for establishing best practicenorms.

FIG. 3 is a flow diagram of a method of determining a cost statistic fora classified diagnosis related group for establishing the best practicenorm.

FIG. 4 is a flow diagram of a method for calculating healthcare providertype percentages to be used in establishing incentive pools.

FIG. 5 is a flow diagram of a method for determining incentive pools.

FIG. 6A is a flow diagram of a method for distributing incentive pools.

FIG. 6B is a flow diagram of a method for computing the maximumphysician incentive by classified diagnosis group.

FIG. 6C is a flow diagram of a method for computing the surgicalimprovement incentive.

FIG. 6D is a flow diagram of a method for computing the medicalimprovement incentive or loss of income compensation.

FIG. 7 is a schematic diagram of a generated report.

FIG. 8 is a schematic diagram of a system for implementing the method ofgainsharing of physician services.

FIG. 9 is a flow diagram of a method for evaluating physician economicperformance.

FIG. 10 is a flow diagram of a method for determining physician economicperformance used in FIG. 9.

DETAILED DESCRIPTION

Reference will now be made in greater detail to a preferred embodimentof the invention, an example of which is illustrated in the accompanyingdrawings. Wherever possible, the same reference numerals will be usedthroughout the drawings and the description to refer to the same or likeparts.

FIG. 1 is a flow diagram of a method for gainsharing of physicianservices. In block 102, a best practice norm is established. The bestpractice norm is a standard used to identify efficient patterns ofresource utilization that are achievable by a group of physicians. Thebest practice norm is established for a classified Diagnosis RelatedGroup (DRG). The Diagnosis Related Groups are federally definedgroupings of hospital services. The DRG can be refined for inclusion ofseverity of illness information, such as ALL PATIENT REFINED DIAGNOSISRELATED GROUPS (APR DRGs), as described below. The best practice norm isused for evaluating physician performance.

FIG. 2 illustrates an embodiment of a method for implementing block 102for establishing best practice norms. In block 200, base year inpatientdata is processed. The base inpatient data is all inpatient data for onehospital or more than one hospital in a particular grouping during abase timeframe, such as a base year. For example, the inpatient datagrouping can relate to all inpatient data of all hospitals in one state,such as New Jersey or more than one state, such as the Mid-AtlanticRegion. Alternatively, the inpatient data grouping can relate toinpatient data of hospitals in a portion of a state, such as hospitalsin a particular county or a selected group of participating hospitals.

In block 201, base year inpatient data is determined from inpatientclaim information which is generated during inpatient stays at hospitalsor the like and include all claims associated with the patient's stay inthe hospital, such as room and board, prescription drug claims, medicaltests and the like. Inpatient claim information can be derived fromclaim information entered on conventional UB92 forms which are used byhospitals. In block 202, the data is subset to payors who willparticipate in the incentive program and edited to apply adjustments tohospitals, such as wage and teaching adjustments. For example, in orderto normalize costs across a state, a wage factor such as theconventional factor employed in the Medicare inpatient prospectivepayment system is applied to the data to remove the wage differentialthat may exist across the state that may be contributing to differencesin cost. In block 203, base year inpatient cost to charge ratio data isalso determined from cost reports, such as the Medicare hospital costreport. In block 204, the cost report data is edited to exclude orcorrect outlier cost to charge ratios (CCR). In block 205, the costsincurred per inpatient claim are determined from the patient claiminformation and the cost reports to form a costed patient record. Forexample, the costs can be determined by industry standard costaccounting techniques, such as hospital-specific, cost-center-specificand ratio of costs to charges.

In block 206, the services provided in the inpatient claim areclassified into diagnosis related groups. The classification of thediagnosis related groups can be adjusted for severity of illness. In theadjustment for severity of illness, the DRGs can be further defined bydescribing each diagnosis in terms of four levels of medical severity(refinement classes). The calculation of a severity level for eachpatient within a DRG considers, for example, whether the DRG is agrouping of medical or surgical diagnoses, the patient's sex, thepatient's age, length of stay, whether the patient died within two daysof admission, and whether the patient was discharged against medicaladvice. For example, an infant requiring heart surgery and intensivecare for weeks is likely to place a greater drain on resources than amiddle-aged victim of a minor heart attack. Even though these patientsfall into the same DRG, the cost attributed to the treatment of each canbe more accurately analyzed due to the refining of the DRG. In thismanner, refined DRGs group patients according to resource intensity, andthus allow more accurate comparisons. For example, block 206 can beimplemented for classifying Medicare fee-for-service inpatient stays bydetermining ALL PATIENT REFINED DIAGNOSIS RELATED GROUPS (APR DRGs)using Averill, R. F. et al. Definition Manual, 3M Health InformationSystem, Wallingford, Conn., 1988, hereby incorporated by reference intothis application and as described in U.S. Patent No. 5,652,842 herebyincorporated in its entirety by reference into this application, can beused to determine classified diagnosis related groups. It will beappreciated that in the present disclosure, classified DRGs are referredto as APR-DRGs and that APR-DRGs can refer to classified DRGs which canbe determined by other patient classification methods.

In block 207, the classified services provided to a patient are assignedto a responsible physician (RP). A RP is defined as the physician mostresponsible for resource utilization while the patient is hospitalized.In the APR-DRG grouping, all inpatient facility claims are classified aseither medical or surgical. The following two physician fields on theconventional uniform bill (UB) 92 forms can be used in the RPdetermination process: Attending Physician referenced by Form Locator 82and other physician referenced by Form Locator 83. For example, theother physician can be the surgeon.

A method for the determination of the RP is as follows:

1) If the APR-DRG assigned is 469, 470, 468, 476, or 477, which areungroupable patient DRGs, such as a procedure with unrelated diagnosisor a coding error, there is no RP assigned;

2) If the APR-DRG is surgical, the RP is the first entry in the otherphysician location. If the other physician location is empty, theattending physician is used;

3) If neither 1 nor 2 above apply, the RP is the attending physician;

4) If the attending physician is empty, then no RP is assigned.

In block 208, a best practice norm (BPN) is established for eachclassified diagnosis related group, such as each APR-DRG.

FIG. 3 illustrates an embodiment of a method for implementing block 208for determining a BPN. In block 300, claims with costs that are outliers(identified using conventional statistical techniques) are excluded. Inblock 301, a normative APR-DRG expected cost statistic is computed basedon all inlier cases using the results of block 207.

In block 302, for each physician determined from inpatient data at block300, the relationship to the APR-DRG expected cost statistic isdetermined. The relationship to the APR-DRG expected cost statistic foreach physician can be determined by computing the percent difference ofthe physician's patient cost from the standard norm APR-DRG expectedcost for a particular grouping of APR-DRGs, referred to as a productline. In block 302, any physician who has a number of cases within theparticular APR-DRG grouping lower than a predetermined threshold ofnumber of physician cases is excluded from the physician list. Forexample, the threshold of the number of physician cases can bedetermined to be 10 such that if the physician has less than 10 caseswithin the particular product line, the physician is not included in theordered list.

In block 303, a physician list is ordered in ascending order based onthe percent difference between actual cost and norm expected costdetermined in block 302 such that the physician with actual cost mostbelow the expected cost is ordered first in the list.

In blocks 304, the number of attending physicians in the selectioncriteria of a product line for the best practice norm is compared to apredetermined threshold of the number of physicians meeting a selectioncriteria best practice norm. For example, the predetermined number ofphysicians meeting a selection criteria best practice norm can be fiveattending physicians. Accordingly, if the number of attending physiciansin the selection criteria is less than the threshold of the number ofphysicians meeting a selection criteria best practice norm, then no bestpractice norm is computed for that product line in block 305. Anindication that the best practice norm has not been determined can beprovided.

In block 306, the physicians who represent the top ‘n’% of cases ofwithin each APR-DRG grouping are selected to establish the BPN. Forillustration purposes, the ordered list of physicians in an APR-DRGgrouping is determined which is labeled A through Z. Starting at thefirst physician in the list (Physician A), the list of physicians isdescended and the number of claims for each physician is accumulateduntil the sum of cases is equal to a predetermined threshold ofphysician claims. For example, the predetermined threshold of physicianclaims can be determined to exceed 25% of the total cases. Assuming thatPhysician G is the physician whose cases result in the 25% of the totalcases threshold of physician claims being met, Physicians A through Gdefine the subset of patients that are included in the best practicenorm for a particular APR-DRG grouping.

If the number of attending physicians in the selection criteria for thebest practice norm is greater than the threshold of the number ofphysicians meeting a selection criteria best practice norm, the APR-DRGcost statistic is recomputed in block 306. Using the subsets of patientsdefined in blocks 300-305, assigned to a physician on the ordered listwhose cases meet the threshold of the number of physicians, thethreshold of physician claims and the threshold of the number ofphysicians meeting the selection criteria best practice norm, the normvalue for each APR-DRG cost statistic is recomputed. In essence, theattending physicians with the best performance (i.e., most belowexpected value) are used to recompute the best practice norm value forexpected cost of the APR-DRG.

The BPN can be determined only if a minimum number of cases exist foreach APR-DRG. For example, a BPN can be determined if there are at least3 cases for a particular APR-DRG.

Referring to FIG. 2, data A is collected for the determined BPN fromblock 307 of FIG. 3. In block 209, data A is stored. In block 210, thedata is presented. For example, the data can be presented by generatinga report for visually displaying data A.

Referring to FIG. 1, a surplus allocation methodology is implemented inblock 103 for establishing incentive pools, in block 104 for computingthe maximum physician incentive and in block 105 for determiningdistribution of the incentive pools.

An implementation of block 103 and 104 for establishing incentive poolsis shown in FIG. 4 and FIG. 5. FIG. 4 illustrates a method forcalculating physician type percentages, such as percentages ofresponsible physician (RP), consultant physician (CP) and hospital basedphysician (HBP), which is determined by the APR-DRG. The HBP cancomprise laboratory, radiology and anesthesiology.

In block 400, inpatient claims are directed as input to block 401. Inblock 401, the inpatient claim is classified into a DRG refined toinclude severity of illness, such as an APR-DRG.

Physician bills from block 402 associated with an inpatient claim aredirected as input to block 403. For example, physician bills arerepresented on Health Care Financing Administration (HCFA) 1500 claimforms. Block 403 links the classified patient claim data from block 401with associated physician billing from block 402.

In block 404, merged data of the physician billing data and theclassified inpatient claim data are assigned to one of the classes ofphysicians such as RP, CP or HBP. An implementation of block 404 is asfollows:

Hospital Based Physicians (HBP) are determined as all physicians whoperform a surgical procedure, including operative manual methods,incisions(s) of the body, internal manipulation and/or removal ofdiseased organ or tissue and can be determined as all physicians fromthe Anesthesiology department with a surgical CPT code between 10000 and69999 that are associated with a surgical procedure. These physicianline items can be categorized as “anesthesia hospital based physicians”.HBP are also determined as all physicians from the Radiology departmentwho use ionizing radiation, radioactive substance or magnetic resonancein the diagnosis and treatment of disease and can be determined as allphysicians with a CPT code between 70000 and 79999 or between 93000 and93550. These physician line items can be categorized as “radiologyhospital based physicians”. HBP are also determined as all physiciansfrom the Pathology and Laboratory department who perform scientificstudies on blood, body fluids, tissue and microscopic organisms for thepurpose of diagnosis of illness and disease and can be determined as allphysicians with a CPT code between 80000 and 89999. These physician lineitems can be categorized as “pathology hospital based physicians”. HBPare also determined as all other physician line items that do not meetthe above criteria that have the same physician ID that has beenidentified as a hospital base physician. These physician line items canbe categorized as “other hospital based physicians”.

If the responsible physician can not be determined from the attendingphysician referenced by Form Locator 82 and other physician referencedby Form Locator 83, Responsible Physician (RP) on Surgical Claims can bedetermined when there is only one physician with a surgical CPT code(10000-69999) that has not been already identified as anAnesthesiologist. The physician's line items can be labeled as RP. Whenthere is more than one physician associated with an inpatient admissionwho performs a surgical procedure, including operative manual methods,incisions(s) of the body, internal manipulation and/or removal of adiseased organ or tissue and can be determined as all physicians with asurgical CPT code (10000-69999) that has not been already identified asan Anesthesiologist, the physician with the highest charges isidentified as the RP. When there is more than one physician associatedwith an inpatient admission who performs with a surgical CPT code(10000-69999) that has not been already identified as anAnesthesiologist and all of these physicians have the highest charges,the physician with the most number of CPT codes is identified as the RP.

Responsible Physician (RP) on Medical Claims in which treatment whichdoes not require surgical intervention in the provision of care aredetermined when there is only one physician not already identified as aHBP or CP. The physician's line items are labeled as RP. When there ismore than one physician not already identified as a HBP or CP, thephysician with the highest number of CPT codes is identified as RPsurgical claims or as medical claims.

In situations when more than one physician can be identified as the RP,the claims can go through an external review and a manual assignment ofthe RP can be determined.

Consulting Physicians (CP) are determined as physicians who provideexpertise in one or more specialties to the responsible physician whensuch expertise is outside the responsible physician's area of expertiseand can be determined as all physicians with all line items with a CPTcode between 99251 and 99274 and not already identified as a HBP. Also,after the RP and HBP been assigned, the remaining physician line itemsare identified as CP.

In block 405, parametric ratios are input. In the parametric approach,two sets of ratios are established: (1) The total amount available forincentive payments to physicians may be set at X % of savings, asmeasured by the previously described methodology. Payments to individualphysicians under this scenario would be determined in the same way aspreviously described. (2) Similarly, payments to the participating thirdparty payor (e.g. HMO, managed care company, etc) would also bedetermined as a percentage of savings, as measured by the previouslydescribed methodology. The parametric ratios are designed to allow forsuch implementation scenarios. In block 406, hospital to physicianratios are computed based on the ratio of expenses from physician claimsfrom block 402 to hospital expenses from block 400. These ratios arecomputed by each classified DRG, such as APR-DRG. In block 407, one ofthe two approaches to setting the hospital to physician ratios isselected.

Data B in block 408 is the stored % RP, CP and HBP by APR-DRG and theratio of physician to hospital expenses. In block 409, the data ispresented. For example, a report can be generated of the break down ofpercentages for the types of physicians.

FIG. 5 is an implementation of block 103, a method for determiningincentive pools. In block 503, the ratios from data B are applied to thecosted hospital data A. In block 504, the total estimated physicianpayments, such as Part B payments are determined by applying the A/Bratio to the total Part A payments. A total physician incentive pool isdetermined to be consistent with an incentive constraint. For example,the Part B fees can be limited to an incentive constraint of 25% to beconsistent with 42 C.F.R. §417.479 requirements for incentive plans, asdescribed above.

Data B of the % RP, CP and HBP by APR-DRG is applied to the totalphysician pool to distribute the incentive pool between determined typesof physicians RP, CP and HBP in respective blocks 505, 506 and 507. Inblock 508, the determined RP incentive pool is proportioned between amedical incentive pool and a surgical incentive pool. In block 509, aloss of income (LOI) pool is subtracted from the total RP incentivepool. In block 512, the LOI is used in an improvement pool at each levelof severity to reimburse physicians for loss of income resulting fromimprovements in efficiency related to the medical admissions. Thebalance left in the RP incentive pool is divided between a medicalperformance pool of block 511 and a surgical incentive pool of block510. The amount of distribution into the medical performance pool andthe surgical incentive pool can be based on a ratio of the total medicalRP fees received to the total surgical RP fees received.

In block 511, a maximum medical performance incentive per case isdetermined for each classified DRG, such as APR-DRG, based on relativecost of each APR-DRG.

Data E of the maximum medical performance incentive per case is storedin block 515. In block 512, a maximum medical improvement incentive isdetermined as improvement in operational performance for each classifiedDRG, such as APR-DRG. Data F of the maximum medical improvementincentive per case is stored in block 516.

Block 510 apportions a surgical performance pool of block 513 with asurgical improvement pool of block 514. For example, the surgicalincentive pool of block 510 can be divided in half with 50% being usedin the surgical performance pool of block 513 and 50% being used in thesurgical improvement pool of block 514. In block 513, a maximum surgicalperformance incentive is determined by each classified DRG, such asAPR-DRG, based on relative costliness to other APR-DRGs. Data G of themaximum surgical performance incentive per case is stored in block 517.In block 514, a maximum surgical performance incentive is determined byimprovement in operational performance for each classified DRG, such asAPR-DRG. Data H of the maximum surgical improvement incentive per caseis stored in block 518.

The proportional amounts set aside in the LOI for the medicalimprovement incentive pool can be reduced over time as efficiency ofphysician increases under method 10. For example, initial amounts setaside in the medical improvement pool and the surgical improvement poolcan be reduced to 75% in the second year of implementation of method 10and 50% in the third year of implementation of method 10 with the 25%subtracted medical improvement pool and surgical improvement pool beingadded to the medical performance pool and the surgical performance pool,respectively.

The following is an example of an implementation for determiningincentive pools:

EXAMPLE 1

1. Total Part A payments at 13 hospitals=$695,480,857. Apply Part A/Bratios to determine total Part B payments, and apply 25% limit todetermine total pool available for incentive payments to physicians($33,314,292).

2. Utilize RP identifiers and Part A/B ratios to determine amount oftotal incentive pool available for distribution to ResponsiblePhysicians ($22,561,127).

3. Estimate payments for loss of income: Identify specific dollaramounts for physician inpatient visits (after initial consult, but priorto discharge) associated with medical admissions, by level of severity.Multiply fees by LOS savings projected for each level of severity andsum: $7,071,702.

4. Subtract projected LOI ($7,071,702) from total pool available fordistribution to RPs ($22,561,127) to determine total Performance Pool:$15,489,425.

5. Apply Part A/B ratios to separate Part B payments to ResponsiblePhysicians into:

-   -   Medical: $30,037,866    -   Surgical: $60,206,642    -   (Ratio of medical to surgical payments is 1 to 2)

6. Utilize ratio of Part B payments determined in Step 5 to divide totalPerformance Pool into Performance Pool/Medical=$5,155,651; and SurgicalPool=$10,333,741.

7. Split Surgical Pool into two equal pools: ImprovementPool/Surgical=$5,166,887; and Performance Pool/Surgical=$5,166,887.(Determine Maximum Physician Incentive for both Performance Pools<medical and surgical>by allocating to APR DRGs based on relativecostliness.)

8. Convert LOI set aside ($7,071,702-Step 4) into ImprovementPool/Medical. (Total Pool Available=$22,561,127, less LOI (ImprovementPool/Medical) $7,071,702, less Surgical Pool $10,333,741, results inPerformance Pool/Medical of $5,155,651-Step 6.)

9. Both Medical and Surgical Improvement Pools can be phased out: Year1-100%; Year 2-75%; Year 3-50% and so forth until the Improvement Poolis merged entirely into the Performance Pool; and the sums subtractedand merged into the respective Performance Pools.

An implementation of block 106 for distributing of an incentive pooldetermined for a responsible physician is shown in FIG. 6A. In block600, current year inpatient data is processed. In block 601 inpatientclaim information, such as information entered on a conventional UB 92form is processed. In block 603, current year inpatient data is alsodetermined from hospital cost reports.

In block 602, the inpatient claims are subset to payors who willparticipate in the incentive program and edited to apply adjustments tohospitals such as wage and teaching adjustments. In block 604, thecurrent year cost report data is edited to exclude or correct outliercost to charge ratios.

In block 605, the costs incurred per patient claim are determined toform a costed patient record. For example, the costs can be determinedby industry standard cost accounting techniques such ashospital-specific, cost-center-specific and ratio of costs to charges.

In block 606, the services provided in the inpatient claim areclassified into diagnosis related groups. The classification of thediagnosis related groups can be adjusted for the severity of illness.For example, block 606 can be implemented for classifying Medicarefee-for-service inpatients by determining ALL PATIENT REFINED DIAGNOSISRELATED GROUPS (APR DRGs) using Averill, R. F. et al., DefinitionManual, 3M Health Information System, Wallingford, Conn., 1988, herebyincorporated by reference into this application. In block 607, theclassified services provided to a patient are grouped by responsiblephysician (RP). The identity of the RP can be determined as describedabove in reference to block 207. In block 608, the incentive iscomputed. Detailed descriptions of the computation of incentives are inFIGS. 6B-6D.

The identity of the admissions for the RP are determined to be medicalor surgical based on the APR-DRG.

In FIG. 6B, the performance incentives for the medical and surgical RPis determined using data A related to the best practice norm. Aperformance ratio is determined as the ratio of the individual RPperformance to the best practice norm. A performance threshold can bedetermined to allow all physicians to receive payments if theirperformance ratio is greater than the performance threshold.

In block 654, a performance incentive is calculated using data E or G ofthe maximum performance per case and the performance ratio from block650. In one embodiment, the performance threshold can also include athreshold of the number of patients admitted per physician. For example,a physician will not meet the performance threshold if the physicianadmits less than 10 patients in the current year. The maximum medicalperformance per case is not available to the RP if the physician'sperformance is determined to be lower than the performance threshold.For example, the performance threshold can relate to physicians at orbelow a percentile of physicians, such as the 90^(th) percentile ofphysicians. An example of a determined incentive can be determined asfollows:

$\frac{{{Percentile}\mspace{14mu}{Cost}} - {{Physician}\text{’}s\mspace{14mu}{Actual}\mspace{14mu}{Cost}}}{{{Percentile}\mspace{14mu}{Cost}} - {{Best}\mspace{14mu}{Practice}\mspace{14mu}{Cost}}} \times \begin{matrix}\begin{matrix}{Maximum} \\{Physician}\end{matrix} \\{Incentive}\end{matrix}$

In FIG. 6B, the improvement incentive for the surgical RP is determinedusing the case mix adjusted surgical improvement incentive per case. Inorder to account for differences in the mix of cases between yearscontributing to an improvement, the improvement incentive is case mixadjusted using a standard set of weights such as the APR-DRG weightsshown in block 668. The case mix adjusted incentive computed in block663 and 667 are compared and the difference is computed in block 669.

In FIG. 6D, a medical improvement incentive is calculated using adetermination of improvement in operational performance. The improvementincentive can be determined by case mix adjusted changes in cost todetermine an improvement ratio. Data F is related to the changes in PartB income from changes in inpatient cost driven by length of stay (LOS)determined by:(Base Year LOS−Actual Year LOS)×Per Diem×Percentile

In order to account for differences in the mix of cases between yearscontributing to a difference in LOS, the LOS in each year is case mixadjusted using a standard set of weights such as the APR-DRG weightsshown in block 681. The case mix adjusted LOS computed in block 685 and686 are compared and the difference is multiplied by the per day loss ofincome table from block 685. The per day loss of income table can befrom a source such as the Medicare Part-B Physician/Supplier RBRVS basedfee schedule published by CMS.

The medical performance incentive determined from block 654 and themedical improvement incentive determined from block 687 are totaled todetermine a total medical incentive.

The distribution of an incentive pool determined for a consultantphysician and a hospital based physician can be determined in thesimilar manner as described with regard to the distribution of theincentive pool determined for a responsible physician. Alternatively,the incentive pool determined for a consultant physician and a hospitalbased physician can be determined by discretion, for example by theresponsible physicians, hospital or payer.

The following is an example of distribution from medical performancepool and the surgical performance pool:

EXAMPLE 2

Performance Pool/Surgical* Assume: 90^(th) Percentile = $33,709 BestPractice Norm = $15,500 Maximum Physician Incentive = $280 Surgeon Aactual cost = $15,500 Surgeon B actual cost = $18,877 Surgeon C actualcost = $26,967 Surgeon Perf $ A = $280$\frac{{{\$ 33}{\text{,}{\text{709}}}} - {{\$ 15}\text{,500}}}{{{\$ 33}{\text{,}{\text{709}}}} - {{\$ 15}\text{,500}}}\begin{matrix} = \\ = \end{matrix}\frac{{\$ 18}\text{,209}}{{\$ 18}\text{,209}} \times {\$ 280}$B = $228$\frac{{{\$ 33}{\text{,}{\text{709}}}} - {{\$ 18}\text{,877}}}{{{\$ 33}{\text{,}{\text{709}}}} - {{\$ 15}\text{,500}}}\begin{matrix} = \\ = \end{matrix}\frac{{\$ 14}\text{,832}}{{\$ 18}\text{,209}} \times {\$ 280}$C = $104$\frac{{{\$ 33}{\text{,}{\text{709}}}} - {{\$ 26}\text{,967}}}{{{\$ 33}{\text{,}{\text{709}}}} - {{\$ 15}\text{,500}}}\begin{matrix} = \\ = \end{matrix}\frac{{\$ 6}\text{,742}}{{\$ 18}\text{,209}} \times {\$ 280}$

Performance Pool/Medical* Assume: 90^(th) Percentile = $12,000 BestPractice Norm = $6,000 Maximum Physician Incentive = $120 Physician Aactual cost= $6,000 Physician B actual cost = $7,000 Physician C actualcost = $10,000 Physician Perf $ A = $120$\frac{{{\$ 12}{\text{,}\text{000}}} - {{\$ 6}\text{,000}}}{{{\$ 12}{\text{,}{\text{000}}}} - {{\$ 6}\text{,000}}} = {{6/6}\; \times {\$ 120}}$B = $100$\frac{{{\$ 12}{\text{,}\text{000}}} - {{\$ 7}\text{,000}}}{{{\$ 12}{\text{,}{\text{000}}}} - {{\$ 6}\text{,000}}} = {{5/6}\; \times {\$ 120}}$C = $40$\frac{{{\$ 12}{\text{,}\text{000}}} - {{\$ 10}\text{,000}}}{{{\$ 12}{\text{,}{\text{000}}}} - {{\$ 6}\text{,000}}} = {{2/6}\; \times {\$ 120}}$

In block 609, a physician report of the total incentive is generated. Anexample of a physician report is shown in FIG. 7.

FIG. 8 illustrates a schematic diagram of the system for implementingmethod 10. Base inpatient claim data 800, base cost report hospital data801 and base physician billing data 802 are provided to processor 804.Processor 804 is controlled by programming information to implement allsteps in method 10. Base inpatient claim data 800 is used in block 200and block 400 of method 10. Base cost report hospital data 801 is usedin block 203 of method 10. Base physician billing data 802 is used inblock 403 of method 10.

Current inpatient claim data 805 and current hospital cost report data806 are provided to processor 804. Current inpatient claim data is usedin block 601 of method 10. Current hospital cost report data is used inblock 603 of method 10.

One or more databases 810 store data A, data B, data C, data D, data E,data F, data G and data H. One or more reports 807 are generated bymethod 10 and provided by processor 804. Reports 807 can be generated byblock 210, block 409, and block 609 of method 10.

Ancillary weights, adjustments and parameters to the processor 804 areshown in block 809.

FIG. 9 is a flow diagram of a method for evaluating economic performanceof a physician. In block 900, a standard cost value is determined fromdata of an ALL PATIENT REFINED DIAGNOSIS RELATED GROUPS (APR DRGs). Inone embodiment the standard cost value is established as a best practicenorm as described above. In this embodiment, block 901 can beimplemented with blocks from FIG. 2 and blocks from FIG. 3, as describedabove. In block 901, economic performance of a physician is determined.

An implementation of block 901 for determining economic performance of aphysician is shown in FIG. 10. In block 910, current year inpatient datais determined from inpatient claim information, such as informationentered on a conventional UB 92 form. In block 911, current yearinpatient data is also determined from hospital cost reports. In block912, the costs incurred per patient claim are determined to form acosted patient record. For example, the costs can be determined byindustry standard cost accounting techniques such as hospital-specific,cost-center-specific and ratio of costs to charges.

In block 913, the services provided in the inpatient claim areclassified into diagnosis related groups. The classification of thediagnosis related groups can be adjusted for the severity of illness.For example, block 913 can be implemented for classifying Medicarefee-for-service inpatients by determining ALL PATIENT REFINED DIAGNOSISRELATED GROUPS (APR DRGs) using Averill, R. F. et al., DefinitionManual, 3M Health Information System, Wallingford, Conn., 1988, herebyincorporated by reference into this application. In block 914, theclassified services provided to a patient are assigned to a healthcareprovider classification. For example, data B 54 of the % RP by APR-DRG,% CP by APR-DRG and % HBP by APR-DRG can be used to determine a RP, CPor HBP provider type, as described above. The identity of the admissionsfor the classified healthcare provider are determined to be medical inblock 915 or are determined to be surgical in block 916.

In block 917, the performance of a healthcare provider for a medicaladmissions of a healthcare provider is determined using data A 27related to the best practice norm. In block 918, the performance of ahealthcare provider for a surgical service is determined using data A 27related to the best practice norm. A performance ratio is determined ofthe individual RP performance to the best practice norm. Each of blocks910-918 are repeated as needed for all patients.

In block 919, a physician report of the economic performance of one ormore physicians for a medical service is generated. In block 920, aphysician report of the economic performance of one or more physiciansfor a surgical service is generated.

It is to be understood that the above-described embodiments areillustrative of only a few of the many possible specific embodimentswhich can represent applications of the principles of the invention.Numerous and varied other arrangements can be readily devised inaccordance with these principles by those skilled in the art withoutdeparting from the spirit and scope of the invention.

1. A method of evaluating physician's economic performance comprisingthe steps of: (a) identifying a population comprising a plurality ofpatients; (b) for each patient, receiving by a computer one or moreinpatient admission charges for medical services rendered to therespective patient; (c) for each inpatient admission charge, adjustingby a computer the inpatient admission charge by a severity of illnessexperienced by the respective patient during provision of the medicalservices; (d) defining a plurality of All Patient Refined DiagnosticRelated Groups, wherein each All Patient Refined Diagnostic RelatedGroup is statistically homogenous group of similar medical charges; (e)for each inpatient admission charge: (i) categorizing by a computer theinpatient admission charge into the All Patient Refined DiagnosticRelated Groups based on the inpatient admission charge's designatedmedical diagnosis; (ii) identifying the physician responsible thereforetherefor; (f) for each All Patient Refined Diagnostic Related Group: (i)defining a numeric threshold; (ii) filtering by a computer from the AllPatient Refined Diagnostic Related Group all inpatient admission chargesnot below the numeric threshold; (iii) averaging the billed amounts ofthe filtered inpatient admission charges below the threshold todetermine a best practice norm; (g) for each physician; (i) assign oneor more inpatient admission charges for which the physician is theresponsible physician; (ii) grouping the physician's one or moreinpatient admission charges by the respective All Patient RefinedDiagnostic Related Group; (iii) analyzing by a computer the physician'sinpatient admission charges in each All Patient Refined DiagnosticRelated Group to determine a current performance profile for eachrespective All Patient Refined Diagnostic Related Group; and determininga physician's economic performance by comparing by a computer eachcurrent performance profile with the best practice norm in theappropriate All Patient Refined Diagnostic Related Group.
 2. The methodof claim 1 further comprising the steps of: inputting physician billingdata associated with said categorized inpatient admission charge,linking said categorized inpatient charge to said physician billing datato form merged data of said physician billing data and said categorizedinpatient charge.
 3. The method of claim 2, further comprising the stepsof: determining hospital to physician cost ratios for each said AllPatient Refined Diagnostic Related Groups from either parametrichospital to physician cost ratios or hospital to physician cost ratioscomputed from ratios of said physician billing data and said categorizedinpatient admission charges.
 4. The method of claim 3 furthercomprising: storing said physician cost ratios for each said All PatientRefined Diagnostic Related Groups.
 5. The method of claim 4 furthercomprising: generating by a computer a report of said physician'seconomic performance for each said All Patient Refined DiagnosticRelated Groups.
 6. The method of claim 1 wherein said inpatientadmission charges comprises inpatient claim information and hospitalcost data.
 7. The method of claim 6 wherein said inpatient claiminformation is determined from a uniform bill (UB) or hospital claim. 8.The method of claim 6 further comprising the step of editing saidhospital cost data to exclude outlier hospital cost data.
 9. The methodof claim 1 wherein in step (e) if one of said classified All PatientRefined Diagnostic Related Groups to said inpatient admission chargecannot be assigned, further comprising the step of removing saidinpatient admission charge.
 10. The method of claim 1 wherein in step(e), if a responsible physician cannot be assigned, further comprisingthe step of: removing said inpatient patient admission charge.